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Two-year extension of GST compensation cess levy likely to cover shortfall in tax collection

Two-year extension of GST compensation cess levy likely to cover shortfall in tax collection
Image Source : PTI Two-year extension of GST compensation cess levy likely to cover shortfall in tax collection

The GST Council is likely to approve a two-year extension of compensation cess levy on items and providers to permit Centre to pay the whole shortfall in GST tax collection by states anticipated until June 2022. Sources in the federal government stated that with 21 states expressing their desire for the Borrowing Option-1 proposed by the Centre to meet the GST compensation wants of states this 12 months, the subsequent course of motion would lengthen the interval of cess levy past 5 12 months GST transition interval that ends in June 2022.

As the Council is likely to undertake the compensation system prompt by t he Centre in the tough 12 months of Covid-19 pandemic, sources stated it might additionally resolve how lengthy compensation cess levy must be prolonged to clear all dues to states.

“A two-year extension of cess is the most likely outcome of the Council cil meeting scheduled on October 5. However, the council may decide to adopt compensation formula for FY21 in the next meeting and defer decision on cess extension till a more appropriate study of the issue is done,” sources quoted earlier stated.

Under the present GST Act compensation for shortfall in GST collection over an agreed system is payable by the centre for the primary 5 years of the operations of new tax system from July 2017 to June 2022. This is paid by means of collection made on account of cess levy on sure items and providers.

The time period of the cess is co-terminus with compensation legal responsibility with the Centre. So, the Council ought to withdraw cess additionally after completion of 5 years. But with Covid presenting totally different problem earlier than the governments and h as lead to states bleeding over GST collections, the compensation wants of the Centre has grown manifold.

As cess couldn’t cover this excessive degree of compensation wants this 12 months and could also be subsequent 12 months, there’s discuss of extending the levy of cess past June 2022.

As per the Centre’s projection, the entire quantity anticipated to be collected from Compensation cess could be to the tune of Rs 65,000 crore in fy21 whereas whole compensation payable to all states and union territories could also be to the tune of Rs 3,00,000 crore. So there’s a whole shortfall of Rs 2,35,000 crore anticipated this 12 months.

The Centre desires this shortfall be met by means of additional borrowings below particular dispensation by the states whereas their dues get settled after June 2022 by extending the compensation cess levy.

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